Beware of Common and Costly Payroll Mistakes
Relying too heavily on your accounting software system to handle your entire payroll could be costly. There are great payroll software packages out there that can handle the job with ease. However, without understanding basic payroll functions you could find yourself paying fines and scrambling to fix issues if something goes wrong with your software. Payroll errors cost you a lot of time and money. Not only do you quickly rack up fines from the IRS, but it can also cost you the trust of your employees and company morale. In order to protect your company from these errors, it’s helpful to know what to look for.
Here are some of the most common payroll mistakes.
1. Not setting payroll up correctly
So many payroll errors can be avoided if the payroll is correctly set up in the first place. This may seem like a no-brainer but many small business owners don’t take the time to understand tax laws. To avoid a knock on your door from the IRS, you need to make sure you understand how much federal and state taxes to withhold from employees. You also need to be knowledgeable about Social Security, Medicare, and other state and local taxes.
2. Incorrectly classifying employees
Misclassifying employees is another payroll mistake that’s common among many small businesses. Most employees can be categorized as either exempt or non-exempt employees. How you classify an employee determines how you reports payroll information for taxes. Misclassifying an employee can lead to audits and penalties. How can you tell if your employee is exempt or non-exempt? The Fair Labor Standards Act has guidelines to follow to help you figure out what category your employees belong in.
3. Missing deposit deadlines
Missing deposit deadlines or submitting incorrect deposit information will result in penalties and charges for your company. You need to be aware of how and when tax funds need to be deposited. The rules and regulations vary depending on your business’s tax liabilities.
4. Mismatched Social Security information
Believe it or not, many companies face penalties because social security numbers don’t match up with employee information. In fact, it’s so common that the Social Security Administration has a Social Security Number Verification service that employers can use to check the name and number.
5. Not allowing enough time for payroll
We all know that if you own or work for a small business, you typically have multiple hats to wear. With all the different roles small business owners have to play, payroll has been known to get pushed to the side until the last minute. As a result, businesses are in a hurry to process payroll and don’t double check the information they’re putting into the system. Correcting over or underpaid wages take more effort than allowing enough time to properly enter the information the first time around.
If you’ve made any of these mistakes, you’re not alone. Many small businesses end up have to pay the IRS a pretty penny thanks to penalties. If you decide to process your own payroll, make sure you take the time to learn federal, state, and local tax laws and you allow yourself enough time to correctly enter the information. Outsourcing your payroll is another viable option; it frees up your time as a small business owner to focus on core business processes and can end up saving up a lot of money in the long run.